GasLog Partners LP
Q1 2017 Earnings Call Transcript

Published: 27 Apr 2017

[Operator:]

Good morning. My name is Liz, and I will be your conference operator today. At this time, I would like to welcome everyone to GasLog Partners' First Quarter 2017 results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. As a reminder, this conference call is being recorded. Today's speakers are Andy Orekar, Chief Executive Officer; Alastair Maxwell, Chief Financial Officer; and to commence the call, Samaan Aziz, Investor Relations Manager. Mr. Aziz, you may begin your conference.

[Samaan Aziz:]

Good morning. And thank you for joining GasLog Partners' first quarter 2017 earnings conference call. For your convenience, this call, webcast and presentation are available on the Investor Relations section of our Web site, www.gaslogmlp.com, where a replay will also be available. Please now turn to slide two of the presentation. Many of our remarks contain forward-looking statements. For factors that could cause actual results to differ materially from these forward-looking statements, please refer to our first quarter earnings press release. In addition, some of our remarks contain non-GAAP financial measures as defined by the SEC. A reconciliation of these is included in the appendix of this presentation. I will now hand it over to Andy Orekar, CEO of GasLog Partners.

[Andy Orekar:]

Thank you, Samaan. Good morning, and thanks to everyone for joining GasLog Partners' first quarter earnings call. I'll begin today's call with our highlights for the quarter, and an overview of our recent dropdown acquisition. Our CFO, Alastair Maxwell, will follow with a review of our financial performance and dropdown pipeline, and I'll conclude with an update on the LNG shipping market, and our distribution growth outlook. Following our presentation we'd be very happy to take any questions you may have. Turning to slide three, you can see our highlights since we spoke with you last quarter. In January, we successfully completed a common equity offering, raising total net proceeds of $80 million. In March, we announced the acquisition of the GasLog Greece and the tax long-term charge or subsidiary of Royal Dutch Shell. For the first quarter, we increased our distribution by 2%, to $0.50 per unit, or $2.00 on an annualized basis. This distribution increase follows the first full-quarter contribution from the recently acquired GasLog Seattle. Including last quarter's 3% increase, we have now increased our distribution by a total of 5% year-on-year. This growth in distribution follows our highest ever quarterly results for revenue and EBITDA, and as a result our coverage ratio remains conservative. Finally, we were delighted to be added to the Alerian MLP Index on March 17. The Alerian is the leading equity market gauge of Master Limited partnerships. And our addition to the index highlights the consistent financial performance and increased market cap of GasLog Partners, since our IPO three years ago. Turning now to slide four, and more detail on our recently announced dropdown acquisition; on March 23rd, GasLog Partners and our GP parent, GasLog Limited, announced an agreement for the Partnership to acquire the GasLog Greece for an aggregate purchase price of $219 million, which includes $1 million for positive networking capital balances to be transferred with the vessel. The acquisition is expected to close in the second quarter. The GasLog Greece is a 174,000 cubic meter capacity LNG carrier, with TFDE propulsion. This modern and strategically attractive vessel was built in 2016, and has been operated by our parent since delivery. She is currently on charter to Shell through March of 2026, and Shell has a five-year extension option. The GasLog Greece will be the youngest vessel in our fleet, and is forecast to generate $24 million in EBITDA over the next 12 months, representing an acquisition multiple of 9.1 times. At closing, the acquisition will be financed with proceeds from our January equity offer plus the assumption of the vessel's existing debt. Turning now to slide five, our GasLog Greece acquisition provides several benefits to the Partnership as it carries an attractive fixed time charter with Shell with nine years remaining, increases our annual EBITDA and distributable cash flow by over 10%, growing our scale to execute future acquisitions, and is supportive of our 10% to 15% CAGR guidance in cash distribution through 2017, with the expectation that the acquisition will be immediately accretive to distributions upon closing. With that as introduction, I'll now turn it over to Alastair to take you through our financials.

[Alastair Maxwell:]

Thanks, Andy. Good morning and good afternoon to everyone. I'm delighted to have joined the GasLog team, and I'm very pleased to report another strong quarter in terms of the financial performance of the Partnership. Please turn to slide six of the presentation. In the first quarter of 2017, we achieved our highest ever quarterly results for revenues and EBITDA, with both metrics sharing slight increases over the last quarter's results, and significant increases over Q1 2016. Our Q1 2017 growth was due to a full quarter's contribution from the GasLog Seattle, although this was partially offset by fewer operating days in the first quarter compared to Q4 of 2016. Our distributable cash flow was in line with the fourth quarter 2016, and 25% higher than Q1 2016. Looking forward, we expect further growth in revenues, EBITDA, and distributable cash flow after the closing of the acquisition of GasLog Greece. Turning to slide seven, which shows our distributable cash flow and distribution coverage ratio, even after the increase in our cash distributions declared to $20.1 million in Q1 2017, our strong operating and financial performance allowed the Partnership to achieve a coverage ratio of 1.17 times, which is above our target coverage ratio of 1.125 times. Next quarter, we expect the partial contribution from GasLog Greece to support a further increase in our distribution coverage ratio. I would also point out that as a result of our consistent growth in distribution since IPO; we have fulfilled the requirements for the conversion of our supported units to common units. And this conversion will occur shortly after our first quarter distribution payment. Turning to slide eight, you can see that following the acquisition of GasLog Greece and including the assumption of the debt attached to the vessel, we expect to have strong credit metrics roughly in line with our financial position prior to the acquisition, with our pro forma debt to total cap being 56%, and our pro forma net debt to EBITDA equaling approximately 4.6 times. This demonstrates our ability to continue to execute accretive dropdowns while maintaining a solid balance sheet. Turning to slide nine, in early April, following GasLog Limited's $250 million bond offering in late March, GasLog Limited and GasLog Partners entered into a new two-part $75 million loan facility. The facility comprises of $30 million revolving credit facility. We've replaced the Partnership's previous $30 million into company revolving facility, which was due to expire in May, 2017, and $45 million term loan facility. The term loan facility and the RTF mature in five years, are pre-payable at any time, and pay interest at rates in line with GasLog Limited's March bond offering. Following the implementation of the new inter-company facility, GasLog Partners drew down $60 million in order to repay the majority of the $90 million junior tranche of the February 2016 credit agreement. Overall, the transaction was leverage-neutral for GasLog Partners. Turning to slide 10, which shows our dropdown pipeline over time, as a result of winning charters for new-build LNG carriers and acquisitions, GasLog Limited has consistently been able to replenish GasLog Partners' dropdown pipeline. Since IPO, GasLog Partners will have acquired seven vessels, including the GasLog Greece, for over $1.2 billion at a run rate of approximately two vessels per year. Over the same period GasLog Limited has added a further seven vessels to the Partnership's dropdown pipeline. And upon closing, the acquisition of GasLog Greece, GasLog Partners will have rights to acquire 12 LNG carriers, each with a firm charter period ending in 2020 to 2029, representing over $200 million in total annual EBITDA. So there is significant potential growth still ahead of us. And with that, I'll turn it back to Andy.

[Andy Orekar:]

Thank you, Alastair. Turning now to slide 11 and an update on the market for LNG supply; this slide details 110 million tons per annum of new liquefaction projects that have already taken final investment decision, and are scheduled to come online through 2020. Many projects or offtakers still need to secure shipping from these volumes, including several U.S. projects, such as Sabine Pass, Cameroon, Freeport, and Corpus Christi. These requirements are expected to be met with a combination of new buildings and on-the-water vessels. Based on these new LNG volumes and projected available tonnage, this shipping should tighten significantly from today, as the growth in shipping demand is expect to exceed the growth in shipping supply. Given the significant projected increase in LNG listings through the end of this decade we feel confident in the expected demand for our vessels and charters in 2018, and 2019. Turning now, to slide 12 and the impact of U.S. LNG exports on the shipping market. This slide uses data from Poten [ph] and shows the destination of Sabine Pass cargo since the facility started production, during which period Sabine produced over 6 million tons of LNG that we shipped to 18 different countries. Based on the distances travel to deliver these cargos and the time taken for each voyage, Poten [ph] calculates a requirement thus far of approximately 1.77 ships per one million tons of LNG exported from Sabine Pass. Applying this multiple to the approximately 50 million tons of additional U.S. volumes projected to come online by 2020, would create demand for 90 LNG carriers. The pie chart on the right-hand panel of this slide shows the contracted offtakers for the six U.S. projects that have taken FID. As you can see, nearly half of these offtakers in the Far East, and include the likes of Osaka Gas, Chubu, and Mitsubishi in Japan, and KOGAS in South Korea. Despite greater destination flexibility we continue to believe most of these contracted volumes will end up in the Far East facilitated by the Panama Canal. Turning now to the LNG demand data, on slide 13, and you can see that this phenomenon is already occurring, with significant year-on-year increases in demand from Japan, South Korea, and China. In the first quarter, we saw a 13% increase in global LNG imports to 72 million tons. Japan, South Korea, and China were the primary drivers of this increase, with Japan and South Korean imports increasing approximately 15%, and China's by over 20%. These increases were primarily due to colder weather and slower-than-expected restart. China's LNG imports are expected to continue growing as emission reduction policies drive increased gas demand for power generation. Turning now to slide 14 and our distribution growth outlook, as mentioned earlier in the call, on the left-hand panel you can see that we have now grown our quarterly distribution to $0.50 per unit or $2.00 on an annualized basis. This represents 2% growth over the fourth quarter, and an 11% compound annual increase since our IPO, which is very much in line with our growth guidance. Those who have followed us closely know that we've consistently targeted 10% to 15% CAGR in distribution since our IPO three years ago. And we've met our guidance in every quarter as a public partnership. The acquisition of the GasLog Greece will be supportive of this guidance, and help enable us to reach the low end of our CAGR target. As we execute further dropdowns to grow our distribution, we believe we have access to a range of capital sources, including preferred equity and private capital that could fund growth at an attractive cost. As such, we affirm the Partnership's target of a 10% or higher CAGR in fast distributions from IPO, which would result in a distribution of 209 or higher by the fourth quarter. Now, turning to slide 15, in summary, in the first quarter GasLog Partners continued to execute its growth strategy. We delivered our highest ever quarterly financial results for revenue and EBITDA, enabling us to increase our cash distribution. The Partnership's pending acquisition of the GasLog Greece supports our cash distribution CAGR guidance, and our extensive dropdown pipeline provides a digital path to future fleet and distribution growth. And looking longer term, continued progress of new liquefaction volume and vessel tender activity support our positive demand outlook for LNG shipping under long-term charters. That brings us to the end of today's presentation. Liz, could you please now open the call for any questions.

[Operator:]

[Operator Instructions] Our first question comes from the line of Hillary Cacanando with Wells Fargo.

[Hillary Cacanando:]

Good morning. Thanks for taking my question. I was wondering if you could give a timeframe of your distribution increase, would it be next quarter, quarter after or would it be one or two?

[Andy Orekar:]

Sure. Hi, Hillary, it's Andy speaking. As I mentioned in my remarks, we expect to close to Greece acquisition here in the second quarter. Well, we were hopeful that it's someway roughly midway or so through the quarter so that we will in fact have some cash flow from the vessel before the end of the second quarter. So if that holds, our sense is there would probably be an increase as a result of the Greece next quarter if there's any luck in closing it well in advance of the end of the quarter. So remains to be seen on terms of the exact closing date, but if it follows the same pattern of the Seattle, that wouldn't surprise us.

[Hillary Cacanando:]

Okay, perfect. And then just one more follow-up question, in terms of the LNG carrier rates, you started the year off very strong. It looked like it was going to continue this trend higher. And it's kind of like sitting at $30,000 to $34,000 per day now, just wanted to get your outlook, your view on the carrier rates for the rest of the year?

[Andy Orekar:]

Sure, well, I think one thing to keep in mind is, there is certainly an element of seasonality that we are serving in the market. And so, February-March are what we like to think of a shoulder month where you have the winter gas demand that's been sold in advance, and it's a bit too early for summer gas demand that you typically see in April and beyond. So, I think we weren't back to privacy rates weaker in February and March, but I think if you look at 2017, much of the production is coming online as weighted towards the back-half of the year. So if you think about the Ichthys, Wheatstone, Sabine Pass Train, Cove Point, all of these are really second half of the year before they start producing volume. So this is -- we don't have a crystal ball, but in many ways it's playing out -- '17 is playing out as we expected although of course we will look into a faster rate of recovery as we move through the year.

[Hillary Cacanando:]

Okay, great. Okay. Thank you so much Andy.

[Andy Orekar:]

Thank you.

[Operator:]

Our next question comes from line of Spiro Dounis with UBS Securities.

[Spiro Dounis:]

Andy and Al, congratulations once again.

[Andy Orekar:]

Thank you.

[Alastair Maxwell:]

Hi, Spiro.

[Spiro Dounis:]

Just wanted to ask, just around that 209 target, just anything about upside to that you know, I imagine that sounds like somewhat in the back at this point with GasLog Greece but there is obviously a lot of runway left here in 2017, what are some of the things that you think you need to see to say pushup above that you know, would that be something where maybe you are announcing another increase in the quarter but doesn't really hit until the first or you actually sneak something else before the end of the year?

[Andy Orekar:]

It's a good question, I think we've as I mentioned in my remarks we've done a good job of hitting our guidance overtime and we've outperformed that low-end and so that 209 as you've noticed sort of the low-end to keep it in that guidance by the fourth quarter. I think we are mindful of being good students of our unit holders capital and so I think we have the opportunity to find an attractive cost though certainly for two additional dropdown this year, but why to not take any capital assets we have for granted. So I think an additional dropdown or two certainly will help us pushback to '09, but we want to be very mindful of the capacity for new equity in that slide, we think there are several sources of capital available to us today that we hope to make use of later this year.

[Spiro Dounis:]

Yes, and actually say, which is my next question, you mentioned that earlier, just in terms of the availability of that capital. I guess, has this been the case for several months now and how long it's been there because you've obviously been using the common so far and that's obviously worked out for you, to also increase your trailer and liquidity, but is this something that it sounds like it's becoming increasingly more attractive and so the likelihood of actually using it seems to be higher this last year and then maybe how you weigh that against you know, I guess obviously increasing the liquidity in the common?

[Andy Orekar:]

Sure, well I think what we would, the common liquidity has increased as you mentioned although we still have the ways to go and which is my opinion. But, I do think, we try to be somewhat conservative and that we pre-fund in dropdown, but we haven't been back to the market with additional [indiscernible] these acquisitions closed. And so that there was a good discipline to have, but with you know, with the Greece hopefully on track to close here in the second quarter and several available capital sources, we are hopeful that we think continue to grow as we move through the year.

[Spiro Dounis:]

Got it. Appreciate the color. Thanks guys.

[Andy Orekar:]

Thanks, Spiro.

[Operator:]

[Operator Instructions] Our next question comes from the line of Mr. Fotis Giannakoulis with Morgan Stanley.

[Ben Friedman:]

Hi, guys. This is actually Ben Friedman for Fotis. Are we on? So just a couple of questions as it relates to the previous questions is, so you guys definitely have a large dropdown pipeline and I guess as your dividend increases the IDRs might become somewhat of a hurdle to your growth. Have you thought at all or the discussions now about resetting, you know, the threshold for the IDRs?

[Andy Orekar:]

Yes, sure Ben. This is Andy speaking and I say firstly we adopt what partners are continually focus on optimizing our cost of capital through any means whether it's you know, ramps to market, the raising capital or the debt side of the balance sheet or in fact our structure as you mentioned with IDR and we exist to be apparent preferred source of equity funding, so you could imagine issue is very important for them as well. Now that having said that, today less than 4% of our cash flow is going to the IDRs and so the GP drag on our growth is really quite minimum and so a resetting or a restructuring of the IDR today would benefit for cost of capital, but the benefit would be relatively marginal. Of course, this will change as we continue to execute dropdowns and more cash flow is running through the peers. And I can comment that we are very mindful of the issue and frankly my experience as in other partnership struggle by waiting too long to address the GP drag and ultimately they are very Limited in their flexibility to solve the problem and so as we approach the 50% care, we will very much continue to focus on this issue, but as $2.25 to go to that tier, it's still way ahead of us.

[Ben Friedman:]

Great. Okay. I mean, then I'm not sure if I miss this earlier, but with your three vessels that are coming off charter next year, is there any sort of update you have on your discussions with show and you know, what sort of extensions these vessels might get and I guess with that as a kind of correlates, it seems as though the price of an LNG carrier in terms of a new world has gone down a bit. So what sort of impact you think the new lower prices might have on future long-term charter rates.

[Andy Orekar:]

Sure, so I will take the first part of that. I think our first strong period ends in May of 2018, so over a year from now and so it's still a bit early for us to be successful to Shell or another party. I think as I mentioned it continued to be our view that the market is improving and we will continue to do so in 2018, which we expect to approach more of a mid cycle rate environment than we are in today. And so, we feel good about the redeployment of these vessels with Shell or another charter. But as I said it is a bit early in the calendar just given when the strong period ends. On your second question, with respect to carrier prices; I'm good to come down slightly, I think there is a limit by how much further they can come down, given the odd profitability or maybe lack there up and so I don't expect further to get declines in the pricing of that whole, but I think as you know, we are apparent in particular as built-in acquired vessels for many years now at various price points and so I think those price points for us in our value are still very consistent with where we are carrying them and where we think we can acquire them in the future. So it's not something that's giving us concern about putting a feeling on long-term rates.

[Alastair Maxwell:]

I would add is that based on the rates that which we chartered new builds last year, they are very consistent with the long-term rates that we've seen in the market going back you know, multiple years and so we don't expect significant changes in the long-term rates for long-term charges for new builds.

[Ben Friedman:]

Sure, all right. Thank you so much guys. I will turn it back.

[Operator:]

Our next question comes with Ben Nolan with Stifel.

[Stephen Fitzworth:]

Hi, this is actually Stephen Fitzworth on for Ben. Just had a couple of questions; first one relates to recent news in Australia referring to in Queensland they are not allowing LNG exports just giving the supply shortage of gas there, have you seen or do you anticipate that to potentially increase charter rates come from that area or potentially you know, have higher demand from U.S. gas going too far east?

[Andy Orekar:]

Yes, it's a very interesting question. This is Andy speaking. I think we are - it's probably too early to comment on the exact impact to have on the market given the recent news, but I think it's important to be online that a lot of the gas that was being export in Australia was going to China and so when we saw for example last year in the fourth quarter when Oregon was down, a number of Sabine volumes ended up in Japan, South Korea, China which was excellent for ton miles. So I think it's a very interesting phenomenon, obviously they are talking out perhaps an FSRU or to being target for the Australian market, which would be certainly an interesting counterparty for credit for an FSRU. But in our mind, we can see it as neutral and potentially positive as you mention more U.S. buildings end up in Asia that with otherwise come from Australia.

[Stephen Fitzworth:]

Okay. Perfect. So my next question deals with how you are hedging your interest rates that we've the last update in your annual K was at 47% of your floating interest rate hedged given you know, the potential for interest rates to increase throughout the year. Are you thinking about increasing the hedge rate at all?

[Alastair Maxwell:]

So, we are touch higher than that today, not much harder result monetization. I think we are pretty comfortable with being at that level of roughly 50% clearly with the –with the company facility we did fixed rate so we have some protection in that facility. So I think the likelihood is we will stay at approximately the same level as we're at today this was we have in place for attractive levels, and I expect we will stay roughly where we are.

[Stephen Fitzworth:]

Okay. Then my last question is on the term loan market, it seems some of your competitors are refinanced their previous term loans with new ones is that a market you are thinking about getting into or you comfortable kind of where you are at?

[Alastair Maxwell:]

Yes, interesting question, I think we are getting a lot of thought to financing options both on the equity side and on the debt side, I think on the debt side our net significant achievers not until 2019 and so I think we have some time in front of us, we will naturally de-leverage over time as a result of amortization, so I think that we are looking at all options, we opened a new market for the group GasLog Limited issued its bonds at the end of March again that is another market that we will monitor over time but the GasLog credit likely in the market in the U.S. so I think multiple options but no immediate hurry given the next significant majority some way.

[Stephen Fitzworth:]

Okay and that does it for me. Thank you for your time.

[Operator:]

[Operator Instructions] Our next question comes from the line of Randy Giveans with Jefferies.

[Randy Giveans:]

Hi guys, good morning and congrats on the record quarter. Two quick questions first so you have seen some short term rates volatility here over the last few months but if you have seen any volatility in the mid to longer term total market and with that have there been any tenders recently for five year or longer time charters?

[Andy Orekar:]

Hi, Randy, it's Andy speaking. No I think he touched on this a few moments ago, we have not seen volatility in the long-term rates where we think new business will be awarded for five, seven year plus charters. There continues to be a lot of discussion and activity for vessels in the period from 18, through 19 and 21 many of these volumes come online and it is from the crowd you would suspect that has offtake often here on the U.S. so I think those rates in economics that have been very consistent in our business, I think are right now unchanged as of today even though there has been great deal of volatility in the spot market.

[Randy Giveans:]

Got it. Okay and then one quick follow up on the fleet, can you give some guidance on dry-docking for remainder of 2017 and into 2018?

[Andy Orekar:]

Sure. So as currently scheduled we have one dry docking scheduled for the end of 2017 and then three in 2018.

[Randy Giveans:]

And those likely being the 2013 goal?

[Andy Orekar:]

Okay.

[Randy Giveans:]

And then those like being the 2013 built.

[Andy Orekar:]

Yes.

[Randy Giveans:]

Alright, well that's it from me. Thank you again.

[Andy Orekar:]

Thanks, Randy.

[Operator:]

Our next question comes from the line of Gregory Lewis with Credit Suisse.

[Joe Nelson:]

Thank you, and good morning. It's Joe Nelson on for Greg today.

[Andy Orekar:]

Hi, Joe.

[Joe Nelson:]

Just, one quick one for me Andy you mentioned earlier as you know you guys are looking at some, some alternative sources of capital as you, you may deployed later this year. Is it purely a cost, cost of capital perspective that's driving, driving this decision or is there maybe depth to, to maybe some of the traditional sources that, that maybe not be there or is there you know maybe some level you guys are just looking to diversify your sources of capital just trying to get a sense of maybe what some of the drivers are?

[Andy Orekar:]

It's honest to hear. I think all of those that are relevant, but I think the diversification is something that we're very focused on at the moment, sizes important, fairly we want to try to view things in way to enable us to write money and then execute on drop downs and but we're very sensitive to across the capital as well I think all of those things are important to us, but I think we are very focused on diversifying sources of capital.

[Joe Nelson:]

Great, thanks and maybe just, just one last one for me, as we think at portfolio of potential drop down assets I mean obviously you know there's different, different timelines, different charters rates how do you balance that, that makes this we think about you know maybe the next potential drop down candidate I mean you know the recently decrease was you know is on a you know nine years left in his term I mean do we look for something maybe you know will sort of to kind of balance a maturity or just some thinking behind that.

[Andy Orekar:]

Sure, it's Andy Joe I think, I think you had on, we have the good fortune of having 12 vessels have fixed on with varying charter line and our simple view of this is trying to not concentrate too much exposure any given year. Again we fairly got some exposure and years coming up that are going to be extremely strong for shipping but balancing that out with a longer charter like we did with agreed as well as some other charters that we have in our pipeline that have six, seven years remaining and so you can begin the spread those renewal rents is something that I think will continue to do as we move to the next year or so…

[Joe Nelson:]

Hey that's it for me. Thanks very much for the time today guys.

[Andy Orekar:]

Thank you.

[Operator:]

I'm showing any further questions in queue at this time. I'd like to turn the call back to Mr. Orekar for any closing remarks.

[Andy Orekar:]

Thank you and thank you to everyone today for listening and your continued interest in GasLog Partners. We certainly appreciated and we look forward to speaking to you all again next quarter. Thanks very much.

[Operator:]

Ladies and gentlemen thank you for your participation in today's conference. This concludes the program. You may now disconnect. Everyone have a great day.